SeaWorld Entertainment, Inc.

Good day and welcome to the SeaWorld Entertainment Incorporated's Q2 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touch-tone phone. To withdraw your question, please press star, then two. Please know this event is being recorded. I would now like to turn the conference over to Matthew Stroud, Head of Investor Relations. Please go ahead.

Thank you, Renan. Good morning, everyone. Welcome to SeaWorld's second quarter earnings conference call. Today's call is being webcast and recorded. A press release was issued this morning and is available on our investor relations website at www.seaworldinvestors.com. Replay information for this call can be found in the press release and will be available on our website following the call. Joining me this morning are Mark Swanson, Chief Executive Officer, and Shell Adams, Chief Financial Officer and Treasurer. This morning we will review our second quarter financial results and then we will open up the call to your questions. Also, we have posted a short slide presentation on our investor website along with our earnings press release that we will discuss during our prepared remarks today. Before we begin, I would like to remind everyone that our comments today will contain forward-looking statements within the meaning of the federal securities laws. These statements are subject to a number of risks and uncertainties that could cause actual results to be materially different from those forward-looking statements, including those identified in the risk factors section of our annual report on Form 10-K and quarterly reports on Form 10-Q filed with the Securities and Exchange Commission. These risk factors may be updated from time to time, and will be included in our filings with the SEC that are available on our website. We undertake no obligation to update any forward-looking statements. In addition, on the call, we may reference non-GAAP financial measures and other financial metrics such as adjusted EBITDA and free cash flow. More information regarding our forward-looking statements and reconciliations of non-GAAP measures to the most comparable GAAP measure is included in our earnings release available on our website and can also be found in our filings with the SEC. Now, I would like to turn the call over to our Chief Executive Officer, Mark Swanson. Mark?

Thank you, Matthew. Good morning, everyone, and thank you for joining us. We are pleased to report our fifth consecutive quarter of record financial results. While our second quarter and first half financial results were strong, these results still do not reflect a normalized operating environment, and we still have significant scope to improve our execution and our financial results. International and group related visitation is better than 2021, but is not yet back to pre-COVID levels. And our staffing improved over the course of the second quarter, but we are still not yet at optimized staffing levels. Inflationary pressures, while moderating, continue to impact costs across the enterprise. Total revenue for the quarter was up more than 24% versus 2019 and up almost 15% versus a record 2021. And our pricing power and consumer spending remain strong with total revenue per capita up significantly versus 2019 and up nicely versus a record 2021. While we were focused on getting all of our parks open and fully operating during the summer season, for the first time since 2019, we could have had more effective cost management during the quarter. We can and will work to do a better job going forward, consistent with what we have been doing for the past several years. We have several new projects and initiatives in flight that we expect will help us work to offset the unusually high inflationary pressures and become an even more efficient and profitable operating business. Further, we expect certain cyclical supply chain related and or temporary cost pressures such as energy and utilities, shipping, food, and certain wage and employee related costs to moderate over the coming months and quarters. We continue to benefit from a very strong financial position with leverage under 2.7 times, long-term debt maturities a generally low cost of debt slightly over 5%, and significant available liquidity and cash flow generation. Given this strong financial position, our clear belief in our go-forward prospects, and what we believe is an extremely attractive value being offered by the markets, we continue to aggressively repurchase shares during the second quarter and into the third quarter, exhausting our prior share repurchase authorizations. And today, we are announcing a new $250 million buyback authorization. We are pleased that preliminary July revenue continued to grow versus a record July 2021 and was up approximately 20% compared to July of 2019, and we look forward to closing out what we expect to be another solid summer. Looking ahead to the fall, we are excited about our popular Halloween events we have scheduled at our SeaWorld Busch Gardens, and Sesame Place Parks. We look forward to building on the strength of last year, including the return of Hollow Scream at SeaWorld Orlando and SeaWorld San Diego following last year's introduction, along with the first year of the Count's Halloween Spooktacular at our newest park, Sesame Place San Diego. As we continue to demonstrate, our business model is strong and resilient. and we have significant opportunities to improve and grow our revenue and profitability. As a reminder, we operate in an industry and in markets with growing demand trends over the long term, and we have significant available guest capacity across our park portfolio. Our recent attendance levels are still below the total attendance levels we achieved in 2019 and well below our historical high attendance recorded in 2008. We have made significant investments that we expect will continue to pay off, and we have specific plans we are executing on today and for the future that give us high confidence in our ability to deliver additional operational and financial improvements that we expect will lead to meaningful increases in shareholder value. In response to various questions and inquiries we have received over the past few weeks and We posted a short presentation on our investor website along with our earnings press release that provides more detail around our cost reduction and efficiency initiatives, the visitation of our PARCC portfolio, and how our industry and business performed during historical recessions. On page four of the presentation, you can see a select list of cost efficiency and reduction initiatives which aggregate to $20 to $40 million of savings. We have broken these initiatives down between our labor, SG&A, OPEX, and cost of goods sold line items. This is just a select list. It does not necessarily reflect everything we are working on or will work on over the coming months and quarters. On page five of the presentation, we show a description of the visitation of each of our markets across our 12-park portfolio and the aggregate statistic for the whole portfolio. As you can see from the page, we estimate that approximately 85% of our attendees drive to our parks. Our visitation is more similar to a typical regional amusement park business. At times, people compare our business to destination theme park businesses like Disney or Universal, but we believe our visitation and business dynamics are more closely comparable to our regional theme park peers as opposed to our destination theme park peers. On page six of the presentation, we show an industry graph that shows the growth of the industry over the last 20 years and the resiliency of the industry during the last two U.S. recessions. On page seven, we show our specific performance during the last two U.S. recessions. As you can see, we believe our business demonstrated resiliency in both the 2001 slash 2002 recession and the 2008 slash 2010 recession. As we've discussed before, we offer tremendous value to our customers, and given our attractive value proposition, and the drive-to nature of our parks and how our business has performed in past recessionary periods, we expect it will perform relatively well in future recessionary environments. We hope this helps everyone better understand our cost reduction and efficiency efforts, the drive-to and regional theme park nature of our total park portfolio, and the resiliency of our industry overall and our business in particular. Before moving to Shell and her update on financial performance, let me comment on a few more items in greater detail. First, let me comment on our balance sheet, which continues to be strong. Our LTM June 2022 net total leverage ratio is below 2.7 times, and we have approximately $531 million of total available liquidity, including $160.8 million of cash. and we expect to generate significant additional cash as we are in the middle of our historically high cash flow generation part of the year. This strong balance sheet gives us flexibility to continue to invest in and grow our business, make opportunistic investments, and to thoughtfully return capital to our shareholders. Second, we continue to make progress on our mobile app, which guests are increasingly utilized to improve their in-park experience. So far, there have been approximately 2.9 million downloads of the app, and in June, almost one out of every five guests in our parks were using and engaging with the app. We are seeing an approximate 10% increase in average transaction value for food and beverage purchases made through the app compared to point-of-sale orders, and we are seeing double-digit percentage revenue penetration across other in-park products that guests are purchasing through the app. Third, we continue to make progress with our plans to design and build hotels to complement our park offerings. We have engaged multiple consultants and industry resources to evaluate a number of site and facility concepts as we further develop our strategies. We look forward to sharing more specifics in future quarters. We repurchased approximately 7.1 million shares of common stock at a total cost of approximately $390.1 million from April 2022 through July 2022, fully exhausting the March 2022 and May 2022 authorizations. For year-to-date July 2022, we have repurchased 8.6 million shares at a total cost of $500 million. Also, our Board today approved a share repurchase authorization for $250 million. Overall, we are proud to report record net income on a trailing 12-month basis of $281.3 million and record adjusted EBITDA on a trailing 12-month basis of over $718 million which was achieved with attendance of only 21.8 million guests, which is not only below our 2019 attendance, but well below our historical high of over 25 million guests we achieved in 2008. These achievements reflect the extraordinary efforts of our teams to operate our parks, despite the challenging environment we faced, and continue to position this company for revenue growth and increased profitability. With that, I would like to introduce everyone to Shell Adams, our new CFO. We're very pleased to have Shell join our team here at SeaWorld. She brings a lot of expertise in finance, accounting, and process improvement, as well as expertise and experience in the hospitality and entertainment industry. We are glad she is here, and we have enjoyed working with her. Shel will now discuss our financial results in more detail. Shel?